The I-405 is one of Los Angeles biggest and busiest freeways and just a few years ago underwent a US$1 billion widening project. But as the saying goes, what you feed grows and a few days ago that was highlighted in nightmarish fashion as tens of thousands tried to get away for Thanksgiving. The images come from ABC7 Eyewitness News twitter feed. All modes can have issues from time to time but unless we can focus on developing some serious multi-modal options then perhaps this will be a vision of Auckland’s future.

And is if that isn’t bad enough, here’s a video of it showing the traffic extending a long way

Unfortunately, comparable figures aren’t available for New Zealand cities. The Ministry of Transport tracks delays in traffic, but doesn’t make monetised estimates of avoidable congestion costs. However, it isn’t that hard to make a reasonable estimate, if you combine MoT’s traffic delay statistics (average delay of 0.52 minutes per kilometre in March 2014, but less in the November survey) with their data on the total amount of vehicle travel in Auckland (12.7 billion vehicle-kilometres driven in 2014).

Following BITRE’s approach, I’ve assumed that avoidable congestion is about 55% of total delay – reflecting the fact that many people prefer to travel even on congested roads. I then monetised the total delay-hours using NZTA’s standard figures for the value of travel time (around $23.40 in 2015 dollars) and converted between Australian and New Zealand money. After mixing in some data on city population in Australia and New Zealand, I got the following chart:

Each individual point is an observation from a single city in a single year – so it’s possible to see how congestion has evolved over time in each city. We can immediately see three important things from this chart.

The first is that Auckland is right on the trend-line. We have the congestion levels that you’d expect to see in an Australasian city with 1.5 million residents – right between Adelaide and Perth. So once again, there are no signs that Auckland is particularly exceptional in the traffic congestion area.

The second is that congestion is a nonlinear phenomenon – it increases faster than city size. You can see that in the upward-sloping trendline fitted through the points on the graph. On average, in this sample of cities, a 10% increase in population is associated with around a 13% increase in congestion levels.

What that means is that new residents entering the city experience the average congestion levels in the city – 10% of that 13% increase – and also have a (relatively small) negative impact on congestion for existing residents – the remaining 3% increase.

The third is that, setting aside the average relationships across all of the cities, individual cities appear to follow slightly different trends. For instance, while Perth and Melbourne have followed the trend-line pretty closely, there seems to be a steeper relationship between congestion and population size in Adelaide and Brisbane.

That suggests that urban policies – land use, transport investments, etc – can enable some cities to grow in more or less efficient ways. Which specific urban policies are better or worse is a bit of a vexing question – but there does appear to be something there.

What do you make of the data on congestion costs in Australasian cities?

But the announcement also raises some questions. For example, congestion pricing is certainly a good idea in principle, but could we put it into practice in Auckland without unintended consequences? And would people in Auckland get on board with it?

So I thought I’d open this up to readers: What do you think the preconditions are for congestion pricing in Auckland? In other words, what would we have to do in order to make the scheme work?

I have my own thoughts on the matter, but rather than putting them forward I thought I’d summarise some of the main things that come up in discussions. I’ve left aside the exact design and technical feasibility of congestion pricing – for now, let’s just assume that it’s going to be possible to implement a GPS-based pricing system that allows for variable tolls between different roads and time periods.

The argument in favour of this view is that congestion is typically very concentrated in peak periods due to bottleneck delay, and that encouraging people to take some trips a bit earlier or a bit later will benefit the overall transport network without imposing large costs on people who re-time journeys to avoid tolls.

2. We need to provide more public transport infrastructure and/or walking and cycling options before implementing congestion pricing.

A second common view is that we need alternative, non-driving transport options in place prior to congestion pricing. Reasonable people could disagree on what would represent enough alternatives, but I’d suggest that a reasonable aspiration would be:

The argument in favour of this view is that it is unfair to ask people to pay a toll without giving them options for avoiding it. In that respect, it conflicts a bit with the first view, which holds that people will have the option of re-timing trips to avoid tolls.

3. We need to use the revenue from congestion pricing to improve transport infrastructure and services on busy corridors.

A third view is that we should spend any additional revenues from congestion pricing to build additional transport infrastructure. Some people argue that this should be more roads, while others argue for public transport.

It seems a bit perverse to implement a demand management measure (congestion pricing) and then turn around and spend more building infrastructure. However, the argument in favour of this view is that congestion pricing will give us a better indication of which corridors have high economic value – as evidenced by higher tolls – and hence that investment is needed to allow more people to use them.

4. We should “recycle” additional revenue from congestion pricing into lower taxes or rates.

Another view on what to do with the revenue from congestion pricing is that it should be returned to households. In other words, the scheme should be “revenue neutral” on the whole.

There are two main ways to do this:

Lowering income taxes, which will (all else equal) enhance incentives to work while discouraging car commuting at peak times

Distributing money equally to households, through lower uniform charges in the rates bill or AECT-style dividends.

The argument in favour of the first approach is that it will tax “bads” (i.e. excess congestion) while rewarding the “goods” (i.e. working). The second approach doesn’t improve incentives to work – people would get the money regardless of whether they are working or not – but it would ensure that every household had an additional chunk of money that they could choose to save, spend, or use to offset the cost of tolls.

5. We should liberalise residential and business zoning rules alongside implementing congestion pricing.

Separate from what to do with the revenues, another view is that it would be necessary to change our approach to land use planning in order to get the best result from congestion pricing.

The argument in favour of this view is that congestion pricing would influence people’s decisions about where to live and work. In other words, some people may choose to move closer to work to avoid paying tolls, while others would prefer to move further out of town to take advantage of faster drive times. However, zoning rules that, for example, held up intensification around employment centres may prevent this from happening.

6. We don’t need congestion pricing in the first place.

Finally, some people argue that congestion pricing is unnecessary. There seem to be two main reasons why someone may hold this view:

Contrary to popular perceptions, Auckland’s not really congested enough to need congestion pricing

If we just got on and built a lot of roads, like, immediately, traffic would flow smoothly and there would never be any congestion ever again.

Congestion pricing has once again hit the political radar, with the news that the Auckland Transport Alignment Project has recommended it as an option to more efficiently manage the transport network. They find that variable road tolls – highest during peak periods on busy roads and low (or even zero) at off-peak times – are the single most effective intervention to improve traffic flow.

On the whole, it looks like support for the idea is on the rise, which is positive. That suggests that the work that Auckland Council’s consensus building group did a few years back has contributed towards a better public conversation on the issue. That’s good, as it’s a challenging idea to sell to people.

Transport Minister Simon Bridges conceded this week, “we can’t keep building new lanes on highways. We will need a combination of demand-side interventions if we are going to deal with congestion over the next couple of decades”. He prefers the term “demand-side interventions” to taxes, tolls or charges but those are what it means.

Unlike the council, the Government does not advance these for revenue raising but for reducing traffic on the roads. It clearly thinks road rationing is more politically acceptable than revenue raising and the AA agrees. Feedback from members, it says, showed support for tolls as long as people could be convinced it was for congestion benefits, not simply revenue.

However, the Herald’s editorial also exhibits a common misunderstanding about congestion pricing, arguing that free routes must be available as an alternative to tolled routes:

The joint report for the council and the Government this week did not suggest how road travel might be charged. Mr Bridges said one option was to track all traffic with GPS technology which is being trialled in Singapore and Japan. But that implies no roads would be free at times the charge applied. Travel is a basic freedom. We could welcome the chance to pay to use a fast lane when we need one, so long as free lanes remain.

…a road tolling scheme may be established to provide funds for the purposes of one of more of the following activities, namely, the planning, design, supervision, construction, maintenance, or operation of a new road, if the Minister of Transport is satisfied that:

the relevant public road controlling authorities (including the Transport Agency) have carried out adequate consultation on the proposed tolling scheme;

the level of community support for the proposed tolling scheme is sufficient;

if an existing road is included in the scope of the tolling scheme, it is physically and operationally integral to the new road in respect of which the tolling scheme will be applied;

a feasible, untolled, alternative route, is available; and

the proposed tolling scheme is efficient and effective.

However, I think that both NZTA and the Herald are being too hasty in assuming that the untolled alternative route has to run parallel to existing roads. Alternatives can exist in time as well as in space.

Stu Donovan described the maths behind this last week. Transportblog reader Bryce Pearce also dug up a good practical example: apparently Singapore’s road pricing scheme allows people to travel for free most of the day. For example, if you are trying to drive on Lorong 6 Toa Payoh at 8:30am, you’ll have to pay $1. But if you leave an hour earlier or an hour later, you won’t pay anything:

ATAP took a similar approach when choosing how to model congestion charges. As the following diagram shows, the ATAP scheme would increase peak and inter-peak pricing, relative to current fuel taxes, but decrease charges in evening periods. Consequently, people would have options to save money for certain types of trips, for example, by shifting supermarket trips from the afternoon to the evening:

Arguably, being able to travel for free on the same road, at a slightly different time, is even better than being able to travel for free on a different, more circuitous road at the same time.

There are obvious user benefits to the approach of varying tolls by time of day. It allows people to make better choices that respect their individual preferences for time, timeliness, and money.

But there are also important system-wide benefits from variable tolls between different time periods. Because congestion can be quite sensitive to changes in the number of cars on the road at a given time, encouraging even a relatively small number of people to shift the time at which they travel can lead to large benefits.

That’s nicely illustrated in the following graph of Auckland Harbour Bridge traffic volumes. The AHB is essentially free-flowing during the middle of the day, when there are around 1300 vehicles per lane per hour. But it is considerably slower during the evening and morning peaks, when the bridge carries more like 1500-1700 vehicles per lane per hour.

Because the peakiest bits of the peak are relatively short – perhaps 2.5 hours in total across an average weekday – you could improve the performance of the bridge by charging tolls during a few short windows. People could still travel for free (or at any rate a lower price) during the remaining 21.5 hours of the day.

From my perspective, that’s a pretty good alternative for drivers! But what do you think about the issue?

If you ask an economist about transport policy, it’s a certainty that they will mention congestion pricing at some point. It’s easy to see why. Currently, we manage our roads like a Soviet supermarket: access is rationed by queues rather than prices. As a result, we get inefficient outcomes.

The New Zealand transport system?

The theoretical and empirical case for congestion pricing is strong. In places where it has been implemented, such as London and Stockholm, it has increased vehicle speeds, improved accessibility, cut pollution, and improved safety. Not bad.

Because congestion pricing works, it tends to become quite popular once people can see the results. Although a majority of Londoners and Stockholmians opposed tolls at the outset, around 70% of residents in both cities now support them. But all of this raises a question: why haven’t more cities implemented congestion pricing?

I was thinking about this when reading a pair of articles that David Roberts (Vox) recently wrote about carbon taxes – and why they may not necessarily be the best policy for preventing climate change. Many of the points that he raises are also relevant to a discussion of congestion pricing.

In the first article, Roberts discusses the benefits of carbon taxes (efficiency) and the problems associated with applying them to complex markets. He argues that:

Believing a single tool will accomplish everything requires seeing the economy as a frictionless machine, a spreadsheet, not what it is: a path-dependent accretion of past decisions and sunk costs, to be tweaked and unwound.

As a result, it may make more sense to intervene more directly in specific markets – say, by regulating coal-fired power plants out of existence or subsidising alternatives. The equivalent in the transport space would be to manage congestion by cobbling together a raft of policies that look unrelated at first glance – e.g. transformative investments in rapid transit and cycling, bus lanes or high-occupancy-toll lanes on more roads, and higher parking prices.

In the second article, Roberts addresses a more challenging issue: politics and the art of the possible. He argues that carbon taxes are seldom effective in practice due to several factors that make implementing them and raising the tax to an effective level a risky proposition. These include concerns about distributional impacts, or the degree to which poor people will bear the impact, and low willingness to pay to avoid harms. Both of these factors seem potentially relevant to congestion pricing as well.

Roberts points out that many of the policy recommendations made for carbon taxes are economically sensible but respond poorly to political constraints. For example:

Many conventional economists, along with some of the few conservatives who take climate policy seriously, favor a “tax shift”: using the carbon tax revenue to reduce other taxes, preferably “distortionary” taxes like payroll or income.

The idea is that you double your impact: You get less of what you don’t want (carbon) and more of what you do want (work) — more efficient markets on both sides. Harvard economist Greg Mankiw is a big proponent of this perspective, as is Bob Inglis, one of the few conservatives actively working on climate change policy.

The main thing to note about tax-shift schemes is that they address few of the political barriers facing carbon pricing.

A carbon/income tax swap would be doubly regressive — raising a regressive tax to lower a progressive one. Reducing payroll taxes might have a net progressive effect, but it is very difficult to imagine the politics working.

In the past, I’ve taken a similar view on congestion charges. I’ve argued that we shouldn’t raise money from tolls. Rather, the revenues should be distributed back to households, and especially low-income households who might be most adversely affected.

But, Roberts suggests, offering to return the revenues will not necessarily make carbon taxes (or congestion pricing, I suspect) popular with the public. Instead, a more popular approach might be to tax something bad – e.g. carbon emissions or road congestion – and reinvest the revenues in something good, like renewable energy or better transport choice:

On the 2014 National Surveys on Energy and Environment, a carbon tax with no specified revenue use polled poorly. But things changed when different uses of the revenue were offered alongside the tax.

[A] different picture emerges when survey participants are asked about three possible uses of the tax revenue. If used to fund programs for renewable power like solar and wind, 60% back the tax overall, including 51% of Republicans, 54% of Independents and 70% of Democrats.

A smaller majority supports a tax if the revenue is returned to them via a rebate check. While 56% overall favor this idea, support ranges from 43% for Republicans to 52% for Independents and 65% for Democrats.

The third option — using the tax revenue to reduce the massive U.S. fiscal deficit — is not popular with any political group. It is opposed by the majority in each.

The same seems to hold true in the case of congestion pricing. In their excellent textbook on transport economics, Kenneth Small and Erik Verhoef cite surveys that find that people prefer toll revenues to be either reinvested in better road infrastructure or used to improve public transport.

This points to a paradox. The best way to get people to support such a scheme may in fact be to promise to put some tolls in place (albeit tolls that they can avoid by making different choices about how and when to travel) and then spend the revenues on giving them more transport choices.

Incidentally, I would stress the word choice in that sentence. There’s a reason why people want carbon tax revenue to be put towards renewable energy projects: it promises to give them options to avoid the tax altogether. In New Zealand, where 80% of electricity is generated from renewable sources, even a high carbon tax would have a small impact on households’ power bills. People in other countries would like to be in that same happy similar position.

The same is likely to be true for transport. If we implement congestion pricing, it might make sense to pair that with investments in public transport, walking, and cycling to allow more people to avoid the tolls. That will be more likely to lead to a win-win situation: People who value being able to drive on uncongested roads will get to pay a small price to do so, while everybody else will get to choose whether to pay the toll or travel differently.

Last week the Upper Harbour Local Board passed a resolution (below) to try and get Auckland Transport to rip out recently installed cycle lanes near the intersection of Upper Harbour Dr (UHD) and Albany Highway. It’s a section of road that I am very familiar with as I use it regularly when I ride to work.

That the Upper Harbour Local Board:

request that Auckland Transport urgently revert to the board with an interim solution regarding the potential to reinstate the second vehicle lane near the intersection between Upper Harbour Drive and Albany Highway, by evaluating options including a shared cycle path and walkway.

The cycle lanes along UHD were installed last year and I’ve previously written about how AT removed the existing broken yellow lines (BYLs) when installing the cycle lanes resulting in locals parking in the cycle lanes. This issue wasn’t unique to UHD but something good came from it with AT agreeing to change their policy and mark BYLs on all cycle lanes.

So what’s the problem this time?

This year UHD has been noticeably more congested this year than it has in the past. On the worst day I’ve seen the slow moving queue was over 2km long* although that’s an extreme – I’ve definitely been thankful to have been on my bike and not caught up in that.

Drivers and residents have been complaining to the local board about the congestion and all have taken a correlation equals causation position on the matter. In their view the problems all stem from the creation of the cycle lanes. You can see the old layout on the Google Maps image below where for about 200m prior to the intersection there were two lanes, one for each direction.

And here’s what it looks like now from Streetview. The cycleway extends to the intersection. You can still see the old lane markings.

Here’s what the local board chair told our friends at Bike Auckland:

Since the upgrade we have had too many complaints to count and have asked the residents for patience. We met with representatives several months ago, but the issue has only worsened. The peak time queue is at pre motorway levels.

The issue is the merge to one lane meaning cars wanting to make a free left onto Albany Highway have to wait. The police have been involved due to driver behaviour with people reported driving up the berm along the footpath etc. it is unsafe. There are corresponding issues on Albany highway with cars driving straight ahead in the right turn lane to jump the queue but that has nothing to do with the cycle lanes – it is the function of the junction as a whole.

It is noted that since the road changes there is significant additional traffic using it from the several hundred new homes in Hobsonville, Whenuapai and beyond. We have substantial delays on all of our arterial roads but this one has been exacerbated by the on road cycle lane.

What we are investigating is whether we can relocate the cycle lane on to the footpath and reinstate the free left. We do not wish to remove the cycle lane. Neither the footpath nor cycle lane is busy at peak times with commuter traffic but is well used at weekends by recreational cyclists. Over time with the many hundreds more homes planned in the surrounding area the delays will get longer and we will need to look at bus priority measures.

I don’t think it is car vs cyclist in this case but getting the most out of what we have with a population growing almost daily.

Even the local Community Constable is blaming the cycle lanes and pushing for the cycle lane to be removed or able to be used by cars.

Below are some observations I’ve made from travelling through here:

Northbound towards the commercial area (over 15k jobs) north/east of Albany Highway is frequently more congested than southbound traffic. In the few times I’ve driven to work I’ve also noticed the left turn off the motorway is normally much more backed up than the right turn.

I’ve frequently observed cars simply ignore the cycle lane and try and use it as an extra vehicle lane- ultimately they end up blocking the cycle lane.

The footpath is too narrow to be a shared path and widening it wouldn’t be cheap and would lead to poorer outcomes for those on bikes or walking (not many). For one it would likely increase the risk for those like myself who are turning right as we would have to cross the slip lane reach the right turn lane.

Returning the road to a three lane configuration would also likely require the removal of the westbound cycle lane.

If it’s new development which is causing the issue, then any change is only likely to have short term benefits at best before it’s all congested again.

By now you might be asking, “but didn’t we just build a parallel motorway, why aren’t people using that?” The image below is from Tauhinu Rd which crosses over SH18 at the southern end of UHD. Like UHD it only seems to have become so congested this year.

This changes the question to “why are both of these routes suddenly seem so much more congested than they were last year?”

The answer to that is actually quite simple, and is one of the oldest reasons in the book – roadworks. For some time now Auckland Transport have been working on Albany Highway and since about the middle of last year that work has focused on the southern section which is the one that most affects traffic to and from the commercial area. Those road works are due to finish later this year. That needs to be completed before any assessment is even considered.

It’s also worth pointing out that traffic isn’t always bad. This was taken last week at the same time and day of the week as the first photos. It was also taken the same day as the image above. The road was empty all the way to the intersection. Perhaps the congestion on UHD was being exacerbated by people trying to use UHD as a rat run to avoid the motorway?

I’ll obviously be watching closely to see how Auckland Transport respond to this request from the local board. It seems to me a case of correlation does not equal causation and if it is decided that the only way to get bike infrastructure is only if it never impacts drivers then it will be a very much longer and more expensive to make any meaningful progress.

* the 2km long queue appeared to be the result of the drivers rubbernecking at the police stopping drivers who travelled through the intersection illegally.

TomTom has announced the results of the TomTom Traffic Index 2013, revealing New Zealanders waste up to 93 hours a year stuck in traffic and that Wellingtonian’s experienced the worst traffic delays during peak hours, spending up to an extra 41 minutes in an hour commute. The Index also revealed that traffic congestion on non-highways is worse than main roads.

The regional results of the Index covers 9 major cities across Australia & New Zealand, with Sydney listed as the most congested city in the region, followed by Auckland and Wellington.

Sydney 34%

Auckland 29%

Wellington 28%

Melbourne 27%

Perth 27%

Christchurch 26%

Adelaide 25%

Brisbane 23%

Canberra 17%

According to the TomTom Traffic Index, Friday morning is the least congested time to commute in New Zealand. The most congested commute was found to be Tuesday morning, and Thursday evening.

There were no cities from our region featured in the top 10 most congested global cities. Auckland, Wellington and Christchurch ranked 22nd, 25th and 42nd respectively in the world’s most congested cities list.

The ranking by overall congestion level in 2013 were:

Moscow 74%

Istanbul 62%

Rio de Janeiro 55%

Mexico City 54%

São Paulo 46%

Palermo 39%

Warsaw 39%

Rome 37%

Los Angeles 36%

Dublin 35%

“The TomTom Traffic Index gives us a great insight into the state of our traffic network. By providing an accurate analysis of traffic flow and guiding traffic away from congested areas, TomTom plays a key role in helping to ease congestion, improving the traffic flow for the cities,” said Phil Allen, TomTom Maps and Traffic Licensing, SE Asia and Oceania.

Here’s Auckland

It’s meaningless for a number of reasons including:

1. It measures the difference in speed between free flow and congested periods. That means cities with lots of all day congestion there isn’t as much of a difference between peak and off peak times and therefore they get recorded as having less congestion.

Various definitions of congestion were reviewed and it was found that the concept of congestion is surprisingly ill-defined. A definition commonly used by economists treats all interactions between vehicles as congestion, while a common engineering definition is based on levels of service and recognises congestion only when the road is operating near or in excess of capacity. A definition of congestion based on the road capacity (ie the maximum sustainable flow) was adopted. The costs of congestion on this basis are derived from the difference between the observed travel times and estimated travel times when the road is operating at capacity.

The graph below shows the engineering definition mentioned above.

3. It doesn’t represent all trips on the transport network. We know that even though only about 10% of all trips to work (which excludes trips for education) are made via PT, it still represents a lot of people. For trips to the City Centre more than half of the people arrive by means other than a private vehicle and many of the PT users arrive via the train, ferry or a bus that has travelled along bus lanes. The people on those services or walking/cycling are doing so often completely free of congestion and so their experience isn’t counted.

4. The data only comes from people with a TomTom device and who have obviously had it on. Many people making the same trip on a daily basis or running a regular errand like going to a supermarket are likely to simply leave their GPS systems off. That is likely to distort the overall figures as they may use routes that have less congestion on them than the route the GPS would select.

5. It can disproportionately impact on smaller cities. As an example if you’re in a larger city and have a 45 minute commute however congestion delays you by 30 minutes that equates to a 67% congestion rate however if you are in a smaller city and you’re commute is only 15 minutes and you get delayed by 15 minutes that’s a 100% delay despite the hold up being half of what the bigger city experienced.

It’s starting to get a bit old now however there’s a good piece on the issues with the methodology in this piece from Reuters, some of which is covered above.

Lastly in the email I received about it they also mentioned this

Of the 138 countries surveyed for the Traffic Index, a global average congestion rate of 26% was recorded, placing New Zealand above the average with a rate of 28%. To put things in perspective, Wellington and Auckland even beat out New York City (39th) in the global rankings, a thriving metropolis of 8.4 million.

So we have worse congestion than New York, a city where the majority get around by methods other than a car and who in recent years has been reclaiming road space for pedestrians, cyclists and buses. Perhaps we should do more of that.

Lastly if we really want to move people around then then the Congestion Free Network would allow people to do that completely free of congestion giving some real choice.

This is the first half of a two-part series of posts. It summarises a few ideas that have been banging around the back of my head for a while – basically, an attempt to answer the question: “What can economics do for cities?” In this part, I discuss a couple of important concepts: agglomeration economies, which underpin cities’ existence and ongoing success, and the potential role of pricing mechanisms for managing urban ills.

What do cities do?

Cities mean different things to different people. They are places to work, places to play, places to invest, places to consume, places to conduct politics, places to realise one’s individuality, places to blend into the crowd. (And many, many more things beside.)

In fact, one of the features of a successful city is that it can mean different things to different people, and attract and retain them for different reasons. Cities exist because they are efficient and diverse.

Economists use the term agglomeration economies to describe the advantages of urban scale and density. If you operate a business, locating in a city will allow you to access more workers, more customers, and more new ideas. But even if not, an urban location still offers advantages – more restaurants and retailers, a larger dating pool, better access to education and healthcare, and more choices about how to work, live, and get around.

New research from the Netherlands finds that agglomeration economies in both production and consumption are important, albeit to a different extent in different cities. Furthermore, ignoring agglomeration economies is a risky proposition for cities:

As history has shown (see, for example, what happened to Detroit or the decline in the population of Amsterdam and Rotterdam referred to above), current successes provide no guarantees for the future. This is what Gibrat’s law tells us, growth is independent of current size. Future growth is therefore largely independent of past success. The chances for policymakers that try to row against the tide are small. A successful policy requires to ‘go with the flow’. Large investments in infrastructure in a declining city do not satisfy any real demand but lead to large financial burdens for the local population, making these cities even less attractive. However, policy can make a difference in growing cities. In order to remain on the short list of hot spots, policymakers in these cities have two margins to work on.

First, the city has to be attractive for innovative entrepreneurs and enterprises to locate their business.

Second, the city has to be an attractive choice for high-educated top talent as a place to live in.

In other words, urban success is a dynamic process. Cities can’t stand still – they must be capable of attracting new people and generating new ideas and opportunities. Simply identifying some things that people like about a city and then freezing them in amber is a recipe for long-term urban failure.

1. Incentives and prices matter, so it’s important to get them right

We need change, but we don’t necessarily need change at all cost. Most development is good, but some has deleterious side-effects. A new factory may contaminate local air and water quality. A coal-fired power plant will damage our climate. A new subdivision may pump traffic onto congested roads. A new retailer may attract more people to park on already-crowded streets.

Policy responses to these challenges can heavy-handed and inefficient. While negative (and positive!) spillovers are abundant in cities, some cures may be worse than the disease. A good example is minimum parking requirements, or MPRs, which require new developments to provide a defined minimum amount of parking. The aim of this policy is to prevent parking from spilling over onto neighbouring streets and properties.

Better pricing is often a better alternative to blunt policy instruments. As any economist will tell you, if you want less of something, put up the price! This approach is applicable to a wide range of policy areas, especially in cities. For example:

If we’re worried about parking spillover, we should accept that MPRs are a costly policy that doesn’t really work, and price on-street parking to ensure that one in seven spaces is always available for people to use. Auckland Transport’s new parking strategy commits to implementing efficient pricing where it is needed – an excellent step forward that more cities should follow.

If we’re worried about climate change, rather than implementing case-by-case controls, we should implement a carbon tax to ensure that people pay the full cost of their emissions. This will encourage people to find ways to grow their businesses and consumption without growing emissions – as it’s done in British Columbia.

There are several important advantages to using prices, rather than regulations or construction, to discourage negative spillovers. First, pricing respects people’s ability to make good choices. If we had a carbon tax, it wouldn’t prevent someone from burning petrol or farming cows. But it would make them pay the full social cost of those choices.

Second, prices can change in response to new information. AT’s new parking policy is a good example of this – they will monitor demand for on-street parking and tweak the prices up if occupancy is too high. This reduces the risk of screwing things up due to forecasting errors.

Third, and most importantly, prices provide governments, businesses, and households better information, which can enable them to make better decisions. Over time, this will result in significant dynamic efficiencies. For example, congestion pricing will help transport agencies plan infrastructure upgrades. Rather than having to guess whether people will value expanded roads – which frequently leads to errors – they will be able to measure the actual value that people place on travel.

Think Auckland has a congestion problem, take a look at these images from China a few days ago on the Beijing-Hong Kong-Macao Expressway. It’s the result of people heading home at the end of a week long national holiday.

The bottleneck kind of reminds me of this image from Sydney – and which is equally appropriate for another road based harbour crossing